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Interview

with Peter Barker-Homek / Paul van Gelder / Leo Koot, CEO / Managing Director Europe / Managing Director UK, TAQA

13.08.2008 / Energyboardroom

Though TAQA internationally is quite a new company and not yet a household name, it is making waves through significant acquisitions and extraordinary growth. How is TAQA aiming to position itself on the global oil and gas arena?

At TAQA we are basically building and energy conglomerate around three segments: upstream oil and gas (exploration and production), midstream (pipelines, LNG, gas storage, carbon sequestration), and downstream (power generation). Margins tend to migrate between the upstream and downstream energy business, so we are developing a balanced portfolio to providing shareholders and bond holders with growth in income stock.

While the upstream business can be very profitable, as in the current context, it is also highly volatile. The challenging aspect there is also to replace each barrel of oil that has been produced. In order to mitigate this risk, TAQA has strong positions as well in midstream and downstream businesses, which allow for cash flow predictions up to 30 years into the future, and require relatively little capital reinvestment.

Geographically, TAQA’s focus is divided in three regons: North America (USA and Canada), Europe (broadly speaking, but in particular countries in Northern Europe), and an ensemble of countries to the east that are being treated as one region (Middle East, North Africa, India, Pakistan).

For a company as young as TAQA, we have already developed significant positions in various markets. In Canada we are the twelfth largest E&P player, we provide 60% of Morroco’s and 80% of Ghana’s power needs, and also supply Abu Dhabi and its vicinity with 85% of total power and water needs. Continuing on the power generation business, we are in partnership with a local group in Saudi Arabia looking to build up to 5000 MW capacity in several cities, and are looking into power projects in India, as well as upstream opportunities in that country.

For the moment (August 2007), TAQA is at $25 billion by assets, present in nine countries, and employing 2800 people including 40 nationalities. We would like to grow to a company of 60 billion in assets by year-end in 2012, which would take us to employ about 7500 people worldwide.

What drove the Abu Dhabi National Energy Company to give such a kick-start to TAQA’s global standing, and how did you (Peter) personally get involved in the process?

In October 2005, the Board of Directors of TAQA decided to go ahead with an IPO of the company, though they had no senior leadership team. TAQA was a player with important investments in power generation companies in the UAE, but the new charter stated that it should grow to become a global energy group.

At that time I was working with BP as a senior advisor in their M&A team. I had done some transactions in the region, and somehow made it on TAQA’s list and they called me for an interview. I was not particularly interested initially by the underlying assets, but got along very well from the start with the Board of Directors. They basically asked me what I would do if I had the opportunity to build a global energy company. I shared my vision with them about the type of company I would create, and they said “go do it”.

Needless to say, personally it was a dream come true. It started out in April 2006, literally just me and my secretary setting out to build a new international company. That summer, we took in some interns from London Business School, Harvard and Stanford to help appraise the different opportunities that I had identified. We did presentations to the Board so that they had a clear understanding at what we were looking into. Then, in less than 10 weeks, we were able to get the company rated and floated $3.5 billion in bonds, which in total left me with $4.5 billion in cash to go shopping.

Which were TAQA’s first moves once the management team was set up and the funds were available?

In 2007 TAQA announced and completed 6 transactions. Our initial acquisition came from BP assets in the Netherlands, which gave us immediate offshore, onshore, pipeline, gas processing and storage play. We followed that with the acquisition of CMS International, which gave us IPP operator and developer skills globally.

Afterwards, TAQA went forward with the acquisition of Talisman’s Brae assets in the North Sea, which left us with some non-operated assets in the UKCS. Then would come three transactions in a row in Canada: Northrock Resources, Pioneer Canada and Prime West. These three players were merged to create a sustainable company of scale in the Canadian market.

Into 2008, TAQA has remained very active, announcing windfarm deals in Morocco and, in particular, the transaction with Shell and Exxon in the UK. This asset acquisition is a defining moment for TAQA’s European business, creating an upstream player about the size of Prime West prior. We have gained not only a significant amount of reserves, but also the opportunity to grow them.

What place does the UK have within TAQA’s international business portfolio following the recent acquisition of Shell assets?

The UK will play a pivotal role within TAQA’s overall European strategy. We are very optimistic about the opportunities in terms of remaining reserves. Though there may not be billion barrel reserves left out there, there are still fields of 100 to 500 million barrels, which is ideal for a company of TAQA’s size and scale. We are looking at business opportunities for at least another 30 years in the North Sea, and could easily continue operating here 50 years from now.

With the UK assets also come a very experienced workforce, infrastructure, and support structure which brings a lot to TAQA. Likewise, we will become a big employer in Aberdeen, with somewhere between 400 and 600 people depending on the peaks.

TAQA started off with the Brea assets, which are operated by Marathon and produce approximately 15 000 barrels of oil equivalent per day (boepd). Based on our small team dealing with that, TAQA went forward with its ‘Big Bird’ acquisition, as we call it in-house. It consists of mature Shell assets with four platforms and three operated subsea satellites tie-backs. Those field are currently producting 40 000 boepd, with somewhere between 200 and 300 million barrels of oils in reserves remaining, so we see a significant upside opportunity.

Our initial focus in the UK is to maximize the value of the Brae non-operated assets and the Shell mature assets acquired. We are setting up new offices in Aberdeen, starting out with approximately 350 people, including a combination of TAQA staff and the service community, with Wood Group as the main partner contractor.

With that base, we have outlined a strategy to grow the business in the UK in three particular elements. The first is to try to use these acquisitions as a strategic hub, looking around the nearby areas to establish if there is any appraisal work to be done. In this regard we would also consider undertaking low risk exploration or making specific acquisitions of neighbouring assets.

TAQA’s second step in its UK development will take us to position ourselves somewhere in-between the smaller companies operating in the area and the majors. There is a vacuum there in which TAQA can play an important role. We expect the majors to divest more and more of their mature assets, creating numerous opportunities for TAQA to pick them up and develop.

The third phase of our short-term plan for the UK will take us to look at opportunities to make corporate acquisitions. We feel that there may be companies in the UKCS which have a good reserve and production base, yet are undervalued by the market. In such a case, TAQA could go forward with an acquisition, allowing us to create greater value together.

Where is TAQA at in terms of taking control of the Shell assets, and what role will Wood Group play in this process?

We are still in the initial phase, in which Shell is looking after the assets on our behalf while we build our organization and get the people in place. In the next phase, Shell will physically hand over the keys to TAQA. During that phase, Wood Group will be duty holder of the assets for us, dealing with all operational issues. They have also already prepared and submitted the safety case.

In the meantime, TAQA will be setting up its own UK organization in-house, which should allow us to become a fully resourced E&P company within 9 to 12 months. At that point, we will take on the duty holder position, meaning complete control of operations and responsibility over the assets.

It is quite significant that a young company TAQA is willing to take up the operator role, and all the responsibilities that come with it. In recent years, many companies entering the UKCS have not been keen to take up these responsibilities. Some people may have thought that TAQA act the same, or act simply as an investment company, but it is not the case. We are building capabilities in order to assume an active role over the whole operation, in contrast with new start companies that tend to outsource most of the challenging parts of the business.

With so much cash to spend and the freedom to seize opportunities around the world, why have you decided to heavily invest in mature assets in the North Sea?

Exploration, simply by definition, is exciting, but it can take years to identify a reserve and bring it into production. TAQA’s current strategy is focusing on acquiring mature fields, with the benefit of being able to integrate the experienced employees which come with them. This is allowing us to build centres of excellence within the company, which may enable us towards the future to pursue exploration-type plays in areas like the Middle East and North Africa.

But for the moment, TAQA is dedicated to giving new life to mature assets, which the majors tend to keep in harvest mode. We are playing a key role in reinvigorating those assets in the North Sea, while at the same time helping fuel the prosperity that Aberdeen is currently benefiting from.

At a European level, TAQA wants to create an integrated energy company. As a young player, we are able to benefit from best practices which are brought by people with a wealth of experience in other companies. TAQA is developing an excellent set of skills, but without the large overhead of the major companies, giving us the opportunity to create an economically viable business in Europe.

The UK and Dutch organizations are highly integrated, constantly working together and exchanging people when necessary. TAQA is establishing its centre of excellence for oil production here in the UK, while the Netherlands is primarily focusing on the gas sector. With these resources now in place, we can look to expand in other countries in the region like Norway, and even support TAQA’s activities in North Africa from the European base.

How is TAQA dealing with the challenge to simultaneously attract and retain talent while integrating the people already working in the assets/companies acquired?

TAQA has several distinguishing features which makes it an employer of choice within the industry. First of all, we have AA-/A2 credit rating, which speaks for itself about the solidity and sustainability of the company. N addition, TAQA has the unique combination of the financial strength of a major and the entrepreneurial attitude of a minor.

TAQA is a flat organization by design, offering people the chance to take space and help define the character of the company. Although we have our own systems, processes and controls, we are also happy to adopt practices from the teams we acquire. This gives those employees a rare opportunity to make big contributions which shape the business.

Moreover, TAQA offers its employees the opportunity of a global career, in one of the world’s most dynamic emerging energy companies. We are also attractive thanks to our desire to embrace new technologies, participate in global campaigns such as the 3C movement and UN Global Compact initiative, and work together with organizations like the Clinton Foundation. TAQA sees itself as an integrated energy company, so we have the responsibility to engage with society and think of the best way to bring it power.

I (Paul) was part of BP when TAQA made its first acquisition in the Netherlands in 2007. We went through a difficult period in the beginning, simply because people were used to BP and were uncertain about where the company was going. But now that the cultural change is in place, people are enjoying the level of freedom and sense of responsibility that TAQA offers them. Whereas initially we had to go out and recruit talent, now they are coming to us. People now look at TAQA’s story, all it represents already on a global scale, and are excited about the opportunity to work in such a company.

In the UK, there are a lot of people familiar with the assets we have acquired, because at some point in their careers they worked there themselves. Many of them are now approaching TAQA spontaneously, with ideas on how to make the most of the assets. There is a lot of knowledge out there which we will happily build on in order to improve production.

Many of the independent and small E&P companies in the North Sea are seeing limits to their abilities to make acquisitions due to the decommissioning and abandonment liabilities. Is this also a matter of concern for TAQA?

As an AA-/A2, TAQA is clearly in a good place so our securities requirements are far less severe than for smaller companies, allowing us a privileged position to compete in the range between the new players and the majors.

That is part of the basket of goods that comes with TAQA; we have a proven ability to transact, offering very high chances of completions. We are financially in a position to step into retirement obligations, which other companies are unable to do.

This has led to many proposals from other companies for farm-ins or joint ventures. TAQA is in a unique position to attract partners both as a strong capital partner on the global arena, and as a natural fit for companies looking for an Arabian partner in the Middle East. TAQA carries at the same time its corporate weight and the halo of the UAE, which is globally seen as a very benign player and good global citizen.

Has TAQA come across any difficulties in concluding transactions due to the political sensibility surrounding the energy sector in many countries?

TAQA has not had to face any kind of opposition from policy makers in the different regions where we have made acquisitions. I believe that the main reason for this is that we are deliberately very vocal about who we are, our strategy, our transparency. Policy makers can easily do research on us, figure out exactly what we do, and how we are conducting ourselves. We also go an extra mile by meeting up with policy makers before investing in their country. TAQA is very straightforward about everything it does, so we have been well received everywhere.

What are the main ambitions over the coming years for TAQA, at the UK, European and global levels?

In the UK, we will develop our strategy based on building around the existing assets as hubs, continuing our dialogue with the majors to seek opportunities to acquire other mature assets, and looking into the possibilities for corporate acquisitions in the area. All of this will take us to the next level in which we will be aiming to double production.

On a broader European level, TAQA will follow a similar strategy and is looking to expand into other countries like Norway. Additionally, in the Netherlands we are focusing particularly on growing our midstream portfolio. TAQA is developing the largest underground gas storage facility in Europe there, and sees opportunities in this area in other countries linked to Russia and with need for flexibility in their capacity, such as Germany.

Globally, TAQA has the objective to be a $60 billion by assets in 2012. Ideally, our business will be evenly distributed between our three focus regions. We are also targeting about 2 billion barrels of 2P reserves, production of 250 000 boepd, 20 000 MW in the power business. In midstream, TAQA will continue growing in the areas of gas storage and carbon sequestration.

What do you aspire for TAQA to represent within the international oil and gas community?

We believe a lot in developing our character. When it comes to our corporate values, one of the main pillars is meritocracy. It does not matter what passport you hold; if you have the right attitude and skills set you can grow within the company. TAQA is playing an active role in addressing global issues like climate change, the environment, work safety, and technology.

We also see ourselves as an emissary, working to bring the West closer to the East and the East closer to the West.

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